Thank you for standing by, and welcome to the Sims Metal Management Limited FY '19 Results Conference Call.(Operator Instructions) Today's presentation may contain forward-looking statements including statements about financial conditions, results of operations, earnings outlook and prospects for Sims Metal Management Limited. These forward-looking statements are subject to assumptions and uncertainties. Actual results may differ materially from those experienced or implied by these forward-looking statements. Those risk factors can also be found on the company's website, www.simsmm.com.

As a reminder, Sims Metal Management is domiciled in Australia and all references to currency are in Australian dollars, unless otherwise noted. I would now like to hand the conference over to Alistair Field, Group CEO and Managing Director of Sims Metal Management. Please go ahead.

Thank you, and good morning. It's a pleasure to be here in Australia delivering the full year results for Sims. Joining me on today's call is the group Chief Financial Officer, Stephen Mikkelsen; and Bill Schmiedel, the President of Global Trade. The slide presentation that we will run through has been lodged with the ASX, along with the results release.

As you can see on Slide 3, the format for today is that I will run through a general overview of performance and the highlights for fiscal 2019. I'll then hand over to Stephen, who will take us through our financial results before I discuss some of the company's strategic priorities and near-term market outlook and the challenges. Following that, there will be some time for Q&A.

Now turning to Slide 4. The challenging market conditions we experienced in the first half abated somewhat, but it was still a difficult second half, making for an overall challenging year. As you can see, I have listed some of the more significant challenges and they include a low and volatile Turkish demand for scrap, zorba prices that have fallen from an average of $1,350 in F '18, down to an average closer to $1,000 for this year. Volatile prices at times contracted our margins as the gap between our sell price and buy price narrowed. The geopolitical tensions have created uncertainty and this is impacting our customers. While it is disappointing to present results where underlying EBIT and profit are both down between 14% and 16%, I believe in the context of a challenging market it shows that the businesses' resilience to poor trading conditions has definitely improved over prior years.

The quality initiatives add to our resilience and are performing well. We expect these to consistently perform over the medium term. I'm also happy at the completion of our strategy road map, and we are now commencing its rollout. The final dividend of $0.19 per share takes total dividends to $0.42 per share, which represents around a 53% payout, near the top of our 45% to 55% target range. Particularly pleasing was the cash performance of the business, and Stephen will elaborate on this in the subsequent slide.

Turning to Slide 5, which highlights some key figures. Sales revenue was up on the back of a relatively flat volumes, but this was entirely due to weakness in the Australian dollar. The challenging business conditions impacted all the profit and return metrics, which were lower across the board. EBITDA reduction was less than half the fallen EBIT as the capital spent on growth and quality initiatives started to contribute meaningfully in fiscal '19.

As I mentioned on the previous slide, the net cash position has improved by over 16% compared with June 2018.

Now to Slide 6, our safety slide. It is with much sadness that I have to report 2 fatalities for the year, and my deep condolences go out to the family and friends of the 2 people who lost their lives. We have had nearly a decade without a fatality and it is simply unacceptable that this year, we did not continue that trend. Excellent safety outcomes require continued focus in identifying these risks and managing those risks. We will continue to maintain our focus on the challenges of managing these risks within our facilities.

Turning now to sustainability on Slide 7. I've said before that the core of Sims' business model is sustainability. Our business makes a positive contribution to society by not only reducing waste that would have otherwise gone to landfill but also lowering CO2 emissions. The example on the right of the slide shows how we assist Hewlett Packard to close the loop and embed the circular economy in their manufacturing process. What is pictured here is a closed-loop program, where we have had ongoing process and successes. Printers returned for recycling growth through shredding and separation, a resin is produced from shredding and printers can be manufactured with target recycling content.

In fiscal 2019, Sims became a member of the World Business Council of Sustainable Development and we are working to develop practical ways of measuring the level of circularity in an organization's processes.

Slide 8. Slide 8 provides the high-level consolidated financial results for fiscal 2019. Stephen will be covering the financials in considerable detail, but I do want to highlight that the margin contraction issues we identified in the first half continued into the second half. However, with the exception of the North American business, all divisions managed to turn in a better second half performance. I've said at the half year results that I remain committed to achieving above 10% return on capital. The full year result of 8.6% was a reasonable improvement on the half year, which was closer to 7.5%. And as I have previously noted, it is considerably higher than prior years when tough markets also prevailed.

Turning now to Slide 9, which provides the charts on market conditions. The 2 charts on the left depict prices in our key commodities over the last 18 months. As you can see, they have all fallen but not to the point where there has been a discernible impact on volumes as scrap has continued to flow. However, all proprietary volumes have, in fact, grown. However, the opportunity to make a higher margin is much more likely at higher prices than lower prices. Aluminum ingot prices and therefore, zorba and twitch prices have suffered, due in part to the falling global car production, requiring less alloy for items such as engine blocks.

As I have previously spoken about, SA Recycling was hit particularly hard by the falling zorba price, as it had to hold its shredder buy price to complete the input feed. The table in the right shows the quotas that have been issued by China up until August 14, and we believe this largely relates to the September quarter. We estimate that there is an overall reduction in the run rate of quotas issued since July compared to FY '18. I am not expecting this to impact Sims however, as we have strong relationships with high-quality buyers requiring our high-quality products.

I'll hand over to Stephen now for further details on the financial results.

Thanks, Alistair. Slide 11 shows, for convenience, the summarized EBIT and volumes by division. I won't talk any further on this slide because the subsequent slides 12 to 18 contain more detail, and I will speak to each of them specifically. Firstly, North American Metals on Slide 12. On a constant currency basis, North America's EBIT was down 12.5% on the back of flat volumes. Overall, the market issues present in the first half did not abate in the second half. When looking at the year in total, NAM's results was negatively impacted by a liquid market volatility and squeezed margins due to competitive activity at some locations. Furthermore, the China tariff on nonferrous imports and a global decline in nonferrous prices could not be fully recouped by a corresponding drop in the buy price.

It is encouraging to note that some of the margin decline was offset by the technology investments we have been making, and Alistair will discuss this more in a later slide. It's also worth mentioning that the second half in particular was impacted by heavy flooding in the southern states and a planned shredder outage.

Turning to Slide 13. ANZ had a strong year, up 9.9%. Strong demand from domestic steel mills continued throughout the year and this helps support margins. Particularly pleasing was the maintenance of the EBIT per tonne despite the falling commodity prices indicated that ANZ was able to lower its buy price to reflect the lower sales price.

Moving on to Slide 14 and U.K. Metals. You will recall that U.K. Metals had a particularly poor first half. EBIT was $6.8 million for the first half and $13.5 million for the second half, resulting in a total EBIT of $20.3 million. While the full year result was disappointingly down 45% on a constant currency basis, it is pleasing to note that the drivers of our second half improvement that we talked about at the first half came to fruition.

Turning to Slide 15 and E-Recycling. In a similar vein to U.K. Metals, E-Recycling had a much improved second half performance, some 60% higher than the first half. While the full year result adjusted for currency movements were still 20% lower than fiscal '18, driven by lower commodity prices and quality costs, the second half started to see the emergence of recycling [the cloud] as a new EBIT contributor.

Moving on to SA Recycling on Slide 16. SA Recycling had a very tough fiscal '19 compared to '18. EBIT on a constant currency basis was down over 50%. SA Recycling was broadly impacted by the same market influence as NAM, but the fall in zorba prices in particular materially eroded margins, as zorba prices fell from a high of USD 1,500 per tonne down to an average closer to USD 1,000. SA Recycling could not lower its shredder feed price without seriously lowering intake volumes. As I said, this issue was much more exaggerated than in NAM and is related to SA Recycling's competitors and the relative indifference to the nonferrous content of shredder feed.

On to Slide 17. Underlying EBIT on a constant currency basis for Global Trading was down 8.9%. This is materially from higher costs driven partially by running offices in Hong Kong and Singapore for part of the year.

The final segment we analyze is on Slide 18, corporate and other. Two points to note here. Firstly, corporate expenses on a constant currency basis are down 16%, and this is largely explained by a reduction in employee costs. Secondly, Sims Municipal Recycling went from a breakeven first half to around a $7 million second half. This is entirely explained by the agreed price adjustment resolution with New York City on the dramatic fall in paper prices over the last 12 months.

I'm going to skip over Slide 19 as it presents, for convenience, a consolidated picture of volumes contained in the previous slides and I'll move straight to Slide 20. Obviously, the most striking aspect of this slide is the very strong fourth quarter. Before anyone gets carried away about this being a run rate going forward, there are a couple of non-repeatable factors relating to timing going on here. Firstly, market conditions allowed us to move volumes from Q3 to Q4. And secondly, the resolution of the paper pricing issue happened in the fourth quarter and the full $9 million impact was booked in that quarter. It's also worth mentioning that by the time the fourth quarter commenced, our improved technology was up and running and producing the [falling] that we were after.

Turning now to Slide 21. A very strong operating cash flow. The most significant change here year-on-year and second half versus first half is the improvement in working capital. The biggest contributions to this were the reduced inventory position, the falling commodity prices, reducing debtors greater than the veteran creditors and finally, a global push to collect cash following the increase in days sales outstanding from the first half where there was a shift towards domestic customers who have longer payment terms than export customers.

My final slide before I hand back to Alistair is Slide 22 on capital expenditure. At $190 million, total CapEx was $20 million to $30 million higher than originally anticipated. This was driven by acceleration of cash spend on value-accretive and strategic projects given the company's sound cash position. Our current estimate for FY '20 is total CapEx of $205 million. It is worth highlighting that the $205 million CapEx figure includes announcements from the Strategy Day, such as feeder yard and nonferrous expansion and a global enterprise resource planning system. It excludes any bolt-on acquisitions in the metals or energy businesses.

Thank you, Stephen. Turning straight to Slide 24. The next couple of slides, we're going to look at some of the investments we have made over the last 2 years. Firstly, Morley in the U.K. You will recall that we paid GBP 32 million for this asset around 18 months ago. I'm pleased to report that in its first full year, it is contributing at an EBIT level in line with the business case, which was an IRR of around 14%. Like the rest of the U.K., Morley has suffered from the transition to higher-quality ferrous but has had favorable movements in lower-than-anticipated capital expenditure and depreciation.

Turning now to Slide 25 and our quality improvement initiatives. As you are all aware, we have made the commitment to invest in technology to extract more metal of a higher quality and more furnace-ready products. A substantial amount of this investment contributed to fiscal '19 resulting in $27 million in EBIT. The total capital invested for this $27 million was approximately $125 million.

Most of the quality initiatives have not yet completed a full year's operation post commissioning, so formal post completion reviews have not yet been undertaken. I'm confident, however, that they will show at least the expected engineering and volume outcomes as well as any anticipated value add to the raw commodity. While the returns were based on expected commodity pricing, such as MRP plants providing increased metal recovery and reduced waste costs, the short-term return would have been impacted by falling commodity prices.

In April, we announced our growth strategy and capital management strategy. There were some concern at the time that the capital was committed and ready to roll out almost as a lump sum. This is not the case, and I would like to run through our process on Slide 26.

As I've just mentioned, our recent acquisition, such as Morley and recent technology investments have either met or exceeded business plans and expectations. Our future investments will be under the same rigorous, staged and disciplined process. Each project must pass multiple stage gates before capital is spent. And once a project is complete, expected returns must be achieved prior to further investment. For example, we will not commit to a second waste to energy plant until the first one is running and producing the expected returns. In a similar vein, we will prove our assumptions around returns and LMS' ability to extract more gas from landfills in our first investment before progressing to the second.

Finally, we will expand feeder yards in North America where there is a strategic fit and we will prove the return on initial feeder yards before further expansion.

On to Slide 27. This slide should look familiar from April's Strategy Day. We've taken FY '25 targets presented at that Strategy Day and compared them to where we are in FY '19 and the progress we want to make in FY '20. This will enable you to map our progress. The measurement for the cloud has progressed from percentage through to tonnage. We are using tonnes as the measure because we believe we can track this most accurately at present. We estimate around 2 million tonnes of cloud material could come on the market in the year 2025. We're targeting 10% of that market share, which equates to around 200,000 tonnes targeted by FY '25. This is a dynamic and rapidly growing opportunity for us and I believe, in the coming years, we will further refine our measurements as we better understand the composition of the material coming from the cloud.

The final slide is Slide 28. Firstly, to summarize FY '19. It has been a year with very challenging market conditions, and I believe the business has navigated through those challenges very well. We have a more resilient business than a few years ago. The quality initiatives are performing well, and we expect these to consistently perform over the medium term. Again though, these quality initiatives add to our resilience. I'm encouraged with the completion of our strategy road map and we're now commencing its rollout.

I'm not seeing any particular change in the outlook for the market in the short term. Escalating trade wars are not good for global growth, which impacts our customers. For example, Turkey has had a difficult year with its slowing domestic economy, forcing it to look for more opportunities in an export market that is being impacted by an uncertain global growth outlook. Zorba and twitch prices are significantly impacted by the automobile industry, and this industry has seen falling sales from falling global growth. It is worth noting, however, that our quality initiatives have set us up well in the category 6 quota system in China and we expect to continue sales through this avenue. Execution of our strategy road map will provide long-term growth and enable us to navigate these market conditions.

Finally, before handing back to the operator for questions, I want to thank all of our 5,000 employees for their dedication over the last year. Operator, back to you.

Look, I've got a few quick ones if I may, please. First of all, starting with the numbers you're projecting around the opportunity in the cloud. I've still got no idea what that actually means, the context of the volumes you're doing with the higher-margin volumes. So a couple of specific questions, as we look at the trajectory between '18 and what you're projecting to '25, is that a growth in market share or is it maintaining the same market share? And in the context of the overall business, is that a -- is it a meaningful increase in volume? Because you don't give us tonnage for that business anyway. And are the margins for that business higher than the margins for the rest of the volume you handle?

Michael, the cloud for us is really a process whereby we've now just completed a number of trial runs with a number of our major customers. Part of this was understanding the process and making sure that we are actually effective in being able to deliver this.

One of the key aspects of the cloud is that this is literally a new process across the globe in terms of public service becoming available or to be replaced. So we are putting it into a tonnage term, which is obviously something that we're quite familiar, and we can actually translate that to yourselves. Part of this, for us, is making sure that this does meet our return hurdles in terms of projects. So the opportunity for us is to grow with this new development in terms of recycling the cloud. So I think it's really early days at this stage, but we have been very focused on ensuring we understand the process and that we will extract the best margins that we can over that process.

So as it is now, we obviously have an E-Recycling business, which recycles around 430,000 tonnes a year. But that's also dealing with compliance issues on a global basis as well. This focus for us, is in particular, around the cloud and making sure that we can grow that market share in the U.S.A. in particular.

Michael, I might just add one really clear thing here as well. The FY '18 result of 14,000 tonnes, that's what I would refer to as the private cloud, that is not public cloud. So that's individual companies having their own things up in the cloud. The growth that you're seeing from then on, so I think 15,200 this year, and then we've talked about 20,000 next year, so you get 200,000, that is entirely new public cloud coming to the market.

But that's -- to date, your total tonnage is 430,000 tonnes. You say the opportunity to add 200,000 tonnes. Do we just pro rata our margin? Or does that imply margin expansion because of fixed cost and a higher margin contribution? Or how should we think about what that price is in an EBIT sense?

Well, I think you should definitely view it as a higher margin contribution. The results we've got so far is we are definitely earning more in an EBIT per tonne from the cloud than we -- public cloud than from our -- the general other things that we're processing because a lot of that is small, domestic appliances, those types of things, particularly out of Germany. We've still got a lot to understand and learn ourselves here. But let me make it clear, initial pilots say it is higher-value, but we are very much in early days.

Okay. Secondly, with respect to the renegotiation of the New York contractor -- contract being compensated for the decline in the value of paper. Does that -- is that just the compensation? Is there anything for -- I think in the past, on some call, you talked about high-margin volume being stolen by third parties and that you weren't getting the higher-margin products that you'd expect in the volumes that have been agreed in the contract. Is there any compensation for that?

No, Michael. I mean the contract as it stands, as you know, was set up over 12 years. We obviously have a very good relationship with the New York Sanitation Department, and there are obviously clauses within that contract that we can discuss with them as circumstances change. And so we will have ongoing discussions with them.

As regards to this recycling material that comes through to our Brooklyn facility, I think in any city, you're going to have individuals that are obviously wanting to pick up aluminum cans out of various garbage facilities and New York City is no different to that. So I think we're accepting that, that is part of the business but there is also part of New York City's long-term waste management plan that is also trying to address some of those issues.

Okay. Clearly, with respect to the -- that helpful $27 million EBIT that you've identified for the quality initiatives. In terms of the trajectory of the implementation of the various technologies, I guess, when we visited Adelaide in, was it April, that wasn't yet commissioned. So if we're to annualize what you'd actually achieved in '17, what would that have looked like?

I'm not quite understanding your question. But I would add this then, obviously, any one of our facilities dealing with zorba or copper granulations across the world today, the minimum hurdle for us, as you well know, is 15%. So I'm not quite sure how you want to annualize that.

I think maybe I can add a little bit there, Michael, it's off that $27 million relating to the $125 million that we've spent, we think there's about another $5 million additional that will come through in FY '20.

Yes. Okay. And then can we then -- if we -- you've given on another chart, I think it was Page 12, twitch heavies and solid production, the year-on-year change. I mean if we use that year-on-year change, this 27,000 tonnes there, $27 million contribution, is that the way to sort of think about that business, $1,000 a tonne margin uplift?

No. $1,000 a tonne margin uplift sounds pretty high. You can't -- I'm going to -- let me come back to you on that one, I think. Because I'm not -- I'm just not quite sure how you're interpreting that. Can I -- let me go away and think about that and I'll come back to you on that one. Maybe we can meet later today.

That's fine. Then in terms of the opportunity for SA Recycling, again, how do we extrapolate from that 27 or 32 if we give you the full year contribution across the various markets? Do we -- is there any difference in the amount of non-ferrous that SA produces as a portion of its total volume? Or can we also just use that uplift as an extrapolation for what you might get from SA in the second half when the technology has been implemented?

So firstly, I think part of the SAR results is consistent with what we said to you in late February. The SAR facilities that they're putting into twitch, that is a long term decision, as was our technology that we put in. And I think one of the key aspects for us was that the non-ferrous challenges that we will face and wanted to make sure that we could address was one was the quality aspect and SAR is no different to the North American business than the Australian and U.K. where we put that technology in for very specific reason, to meet the quality standards but also diversify our customer base and obviously be able to sell a product at a higher level.

As you probably are aware of, the national non-ferrous standard committee and the customs agency of China released some of the technological changes that they want to see, and that is really around the reclassification of Category 6. Now you're talking about new metal. So the twitch that you are aware that SAR and both Sims is putting in are twitches now meeting that standard, which literally only came out 3 days ago. So for us, it's a vindication of all that capital that SAR as well as Sims has spent so we will able to meet that twitch standard as well as the copper standard that they have put out as well. So I think, for us, the zorba as we know it today will be disappearing by the end of June/July next year. So I think the uplift for us is really going to be about, hopefully, the prices will rise and we'll be able to see the benefits come through then.

But I'm trying to sort of recognize or understand what that price might be in that you've identified what it is for the rest of the business and so can we just pro rata the tonnes to say that, that's the -- that's what SA Recycling has been missing out on through not being able to compete because it hasn't had that sort of byproduct credit revenue?

Michael, it's Stephen. I've just -- I've just quickly [retold to] your question, and I'm understanding where you're coming from in terms of NAM and how you'd make it -- translate that on to SAR. One of the things you must understand is a significant portion of the uplift in the $27 million was MRP recovery plant, which were then actually significant amounts in both Chicago and Claremont and New York. So no, you just can't say -- I guess my point is you just can't simply take that uplift in twitch production in North America and sort of extrapolate that through to the $27 million. I guess the way -- another way you could be thinking about it is the average premium -- we talked about the average premium of twitch and heavies over zorba for FY '19 was around about $100 a tonne.

Okay. That's great. But finally, in terms of guidance or lack of them. In the observations you've made about the market, any of us could have made about the market, so there are confirmatory report we can all see pretty easily and read. Some of your peers give very definitive guidance around what they're expecting for the next quarter. Is that too difficult for your business? Are you not able to actually see it? Is it too risky a thing? Or is there something different about your business that you're not willing to at least directionally quantify or define what you're seeing for the next quarter?

Yes. Okay. So meaning it's impossible for you to forecast. So is that meaning there's something different about your business where your peers I don't think would regard it as taking a guess but they're giving guidance based on what they can see and what they've already perhaps committed?

I think a really good example -- it's Stephen here, Mike. I think a really good example of that though, on this quarterly, at least giving quarterly guidance is, if you look at the underlying EBIT by quarter on Slide 20, at the beginning of Q3, we would not have seen -- we would not have been predicting that big move between Q3 volume -- Q3 and Q4. We would have seen it a little bit more even. But the opportunity arose during the quarter 2 to take more effectively a better result in Q4. And so there is, I think this quarterly in particular, there's a real risk that what actually happens during the quarter, we deal with in real time. And it's just -- it seems to me quite volatile to be trying to predict that at the beginning. We're 6 weeks in and it seems a volatile thing to be predicting for a quarter.

Gents, just was keen to pick up again very quickly on run rates. The run rate commentary you made Q4 into '20, Stephen. Just so I think you mentioned, obviously, some of the quality carry-ons. The municipal contract, presumably, that carries through. So I'm kind of picking up on what Michael was asking, too. Is there -- how much of that $7.4 million EBIT is one-off then in that quarter?

So let's -- I mean Lexmark is the best -- is a very good example of it. So there was $9 million of profit recognized in that quarter but it related to the entire year. It's just that we finalized the contract, the next contract renegotiation. So that's a good example. And yes, it absolutely carries forward for the next -- I'd say, that's a 3-year deal, so it still got another 2 years to run. But that's a good example. The other one, you can see them in that slide on 20, it's just the volume shift that went from Q3 to Q4. It's traditionally a higher quarter but certainly not to that extent. So again, reluctant to actually talk more about what we think Q1 or Q2 are going to be.

Okay. And I won't belabor the point. Just was keen to then also talk through regional mix. Some very strong movements in your sales into South Korea, Australia domestic, also countering some of the weaker performances that you've seen in other markets. Just keen to go very quickly around the ground on those 2. And then also get Bill's view on Turkey and the longevity of the challenges that you're expecting there.

So going around in terms of Australia, I think a very good performance for the team. Obviously, the export split between that and domestic is obviously something John and his team focus on. Good growth. The New Zealand business coming on full on as well. I think when we look at the United States, part of the business, the second half obviously not as good as we would like to have seen but challenging conditions no less and I think I'm -- we've got a very strong team in the North America and so the plans that we have in place, I'm quite confident they'll be growing next year as per the plan. U.K. obviously has got passed a number of commissioning issues that they had with their technology. And I think they have -- they are set now to move forward with the quality issues and I expect to see volumes improvement there as well. So maybe I'll hand over to Bill to just talk about Turkey.

Yes, it's Bill. Turkey, as we've talked about and you read about had some very stressful economic conditions. I don't really see that dynamic changing much in certainly the next 12 months, maybe 18 months. Having said that, as far as our company is concerned, our tonnages made has been remarkably the same year-on-year to Turkey. So we certainly diversified our tonnages but we've found enough opportunities to supply certain Turkish mills with equivalent tonnage that we have in the past. But that's not to say that Turkey is coming out of the woods as yet. They're in a little bit of a hole and it's going to take some time to get out of it. But having been around forever and a day, they've been in these situations before, 2 or 3 times as I recall, and they have always come out stronger. So I don't anticipate that being any different -- or this time being any different.

Yes. However, there's still a large percentage of their finished steel products going into the domestic economy. I think in June, for instance, it was close to 50% of the production went domestic. The problem is and that's mostly on the flat-rolled sector. The long products had been more challenging. Probably, I would say, if this time last year, there were 7 million tonnes able to be moved into the domestic markets, probably 3.5 million tonnes to 4 million tonnes. But they've still been fairly vibrant. They're well-seasoned international traders. They're probably the most efficient electric arc furnace operators, conversion from scrap to [billet] is cheaper than anywhere else that I am aware of. So I am -- I have some historical confidence in them to emerge from this. But it's going to be rocky for a bit.

South Korea, interesting. The tonnages went up. Yes, the tonnages went up from us, mostly on the back of 1 major mill that is both BOF and EAF producer. Is a large play on that was to -- it's kind of a loss leader for them because their main place to obtain scrap is Japan. So if you notice, the U.S. went up and Japanese scrap going there went down. And that was probably, I would say, a planned event, which we were happy to take advantage of.

Perfect. And then just a very quick one for Stephen. Stephen, anything that we should be thinking about in terms of unwind of working capital? Because it obviously came through quite strongly in this period.

I have nothing in particular other than as I've discovered the working capital can be volatile and move around. If you look at the half year, we were down significantly. We're up again by the time we got at the end of the year. Our domestic export hasn't moved much. We'll –- so nothing in particular is probably my -- would be my simplest way of saying it.

I've got a couple of questions. Just wanted to focus on North America, and you mentioned that 5 feeder yards had been opened during the period. I'm wondering if you could just pencil roughly when in the period they opened, whereabouts were you targeting those feeder yards? And what sort of proportion or absolute dollar earnings do they provide in both ferrous and nonferrous?

These are going to be small facilities that are basically in areas where we're not wanting to create a major competition area. It's opportunities where the composition is fairly weak. It's outlying areas to some of the facilities we currently have. So they're fairly small yards, 3,000, 4,000-tonne a month, I would think.

Okay. If you could touch base on that municipal agreement again? You mentioned $9 million profit in that fourth quarter. Is that the guidance for the half, if I recall correctly? And so should we just annualize off of that '18 going forward?

No, that was for the full year, Owen. And so -- yes, full year. And what it does, which is quite important to point out. It effectively just compensates us for the losses that we were making on that significant fall in paper prices.

Okay. Can you give us an update on what's happening with LMS? I know at The Australian today, you were talking about looking at potential acquisition targets in the U.S. I'm just wondering whether is there any progress on that front?

No problem, Owen. We've got a number of identified targets in the United States that we're looking at pre-feasibilities. The opportunities range quite widely from sort of a 5-megawatt facility right up to a 30-megawatt facility. We brought a number of our LMS team from Australia to look at these facilities. In some cases, there's been opportunity to really improve the flows through them. But at this stage, in the pre-feasibility, we've also been very disciplined in how we actually approach this in terms of managing the return that we want from this, particularly the first one. So we've been very cautious and the team is going through this quite methodically. So we definitely have a number of opportunities we're looking through right now. And hopefully, by December, we should have hopefully one narrowed down and one specific target for the first opportunity.

Okay. And then just one final question for me in terms of you talked about the business being a lot more resilient in obviously what is a pretty challenging pricing environment. Just looking at North America as sort of the best example where you've just introduced a lot of, I guess, nonferrous extraction and some improved extraction technology. Are you seeing, I guess, a better margin on the volumes that you're procuring? Or is this technology enabling you to procure more volume at the same margin you were beforehand?

Pretty much the latter. I think one of the key aspects for us is that the yield, from an MRP plant technology that we had 10 years ago, the yield we're seeing come through now is higher. Therefore, we're actually getting more volume come through.

A couple of questions from me about waste-to-energy. So a number of Australian waste management companies are looking at waste-to-energy investments. Would your proposed facilities be different to what these companies are looking at? And are there synergies to maybe partnering up with some of these guys? And who do you think are the natural owners of these assets?

I think the first point I would make is that our focus is on the waste that we actually generate from our shredding product. In other words, that is, particular, that is ASR. So our first focus is on dealing with our waste, nobody else's waste. And our ASR is not the same as municipal waste, as an example. So I think a lot of what we might be seeing is to deal with normal waste, not the particular product that we provide. So that's the first point.

The second point is the technology that we are going to look at is more from a gasification opportunity as well as pyrolysis. So we're down to a number of opportunities in terms of technology but that's very specific in dealing with our ASR, which is a high calorific value, and one of the key success factors of running any of these plants is you have to -- you need to have a very consistent feed. And that's exactly what we're focusing on dealing with our waste, we control it, we know exactly what the calorific value is and we can actually then run a very efficient plant. So I can't speak to all the other individuals you're talking but I think a lot of the focus and attention that I'm hearing in Australia has more to do with municipal solid waste, not the type of product that we will provide.

Yes, great. And then just a bit of discussion going on in Australia right now about developing a recycling industry within Australia. Are there any impacts or any potential opportunities to Sims from that perspective?

Certainly, from a global point of view, and the expertise that we have, obviously, in the waste to energy, as I've just mentioned, that's going to be really about us focusing on recycling that sort of waste and not wanting to stick anything into a landfill. The second component, as you well know, is that we have the New York City contract for municipal recycling. So we certainly do have expertise in recycling in municipal waste and we could certainly bring that as an opportunity to the Australian environment.

Sorry about before, I dropped out. But a couple of things from me. I don't want to belabor the point on, but I just want to get a better understanding on the quarterly profits on Slide 20. So it looks like $100 million in the fourth quarter and if we take out SMR, we're looking at about $90 million. I realize you don't want to make a specific sort of guidance but can you talk about the seasonality of volume? Can you talk about how the first 6 weeks has been tracking in terms of EBIT per tonne? That's a first question.

Well, I think -- yes, the first thing is that I don't think you can look at the fourth quarter without looking at the third quarter. And again, I don't want to belabor that point either. But if you look at the increase in volumes, it really was quite dramatic between the third and fourth quarter. So you need to do more than just take out -- you just need to more than just take out the SMR one.

As far as how things are tracking in this first quarter, we are -- it is only 6 weeks in. The market is still sorting itself out. I think that's where we're going to leave it. I know that might be a bit frustrating, but we need to get -- let's get further through the year, further into all the various market risks and opportunities we have laid out and I think we'll be in a much better position to give a more considered and educated view.

Secondly, Stephen, while you've got the floor, in terms of cash conversion, obviously, very outstanding. Can you remind me of the targets there? And while we're on cash, CapEx is materially lower in terms of your guidance versus your strategy presentation. Can just talk us through the...

So 2 things, 2 things. First, let me deal with the cash conversion then I'll move on to the FY '20 CapEx. On cash conversion, in the long run and over the medium term, you would expect our EBITDA conversion to be close to 100%. There's no reason why it shouldn't be. But as we saw in the first half and now unwound in the second half, we do have -- it doesn't take much on the way of either days sales outstanding moving out as we've sold to some more domestic customers or us -- inventory dropping as we're getting shipping out at any given month and/or the price. It doesn't take much for it to move around quite significantly because on $6.5 billion of revenue, you don't have to have much. But in the long term, there's no reason why EBITDA conversion shouldn't average 100%.

As far as the CapEx, there's 2 things I'll -- let's point out that, that forecast of $205 million doesn't include any acquisitions. And on the Strategy Day, we did have acquisitions in there. We'd allow for some bolt-on acquisitions in the NAM area, and as Alistair spoke previously, we'd allow for an acquisition in energy and taking the LMS basis to the U.S. That is not in that forecast because right now, that would simply -- that's out of our control as to whether or not we do actually have a bolt-on acquisition. Other than that, it's probably fair to say we've trimmed it as we've got -- we've moved on from -- that was back in April and we've firmed up our numbers on timing of waste-to-energy and those types of things. So I'd describe it as we definitely trimmed it, no doubt about it. But it is missing those 2 other things I talked about.

And just lastly, in terms of the China Category 6 quotas, you called out that's -- not expecting it to materially impact your performance. That's on a volume basis that you're calling out for? Is that correct?

Yes. That's specific from a volume perspective. We have long-term relationships with the key customers and I think the quota system is really about the buyers. The quota systems are given to the buyers in China, not to us. And the buyers that are -- that we're dealing with are quite confident on the volumes that we can provide them. So on that basis, we're quite confident that we can move forward. And obviously, our quality needs to meet that specific standard. And as I spoke about the national nonferrous standard committee that released the document, we pretty much are focused on that quality and can deliver it. So very pleased.